Earlier today I tweeted the following regarding the price action in European bank stocks. Remember, they were very high on the list of issues rattling global markets in January and February:
— Dan Nathan (@RiskReversal) April 5, 2016
There was some interesting options activity that suggests at least one investor is worried about the recent reversal in European banks stocks, specifically Deutsche Bank (DB):
When shares of the beleaguered German bank were trading $15.97 at 3pm a trader apparently rolled a long term bearish bet, selling to close 25,000 Jan2018 13 puts at $2.50 and buying to open 25,000 of the Jan2018 15 / 8 put spreads for $2.50. This is a great example of a trader looking to capture some of the recent move lower from its recent highs, with a premium neutral spread. This roll makes sense because the break-even is now a dollar away vs the prior break-even that was below $13. DB has been a slow moving train-wreck over the last couple years, down about 70% from its early 2014 highs:
Year to date the stock has traded in a massive range from $24 at the start of the year, to below $15 in early February to above $20 in mid March. The stock is now down 22% in the last few weeks, and up only 8% from its multi-year lows:
Lastly, 5yr credit default swaps on DB rose from 100 basis points to 264 bps in January as the stock sold off from $24 to $15. As credit fears eased and equity markets rallied in the back half of Feb and the first half of March, DB CDS came off hard, nearly 50%, but is now approaching 200 bps once again:
To put this recent move in DB credit and equity in some context, at the height of the European sovereign debt crisis in late 2011, DB stock was trading in the low $30s as their CDS was on its way from 200 to 300 bps:
It appears 4 and half years on, investors have lost some confidence in the viability of DB’s equity in the event of another credit crisis, regardless of what would likely be a backstop by the Bundesbank.